<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 2000 Commission file number: 0-25066
OWOSSO CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2756709
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
The Triad Building, 2200 Renaissance Boulevard
Suite 150, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 275-4500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of June 9, 2000, 5,849,739 shares of the Registrant's Common Stock, $.01 par
value, were outstanding.
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OWOSSO CORPORATION
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
for the three and six months ended April 30, 2000 and May 2, 1999
(unaudited)
Condensed Consolidated Balance Sheets at 4
April 30, 2000 (unaudited) and October 31, 1999
Condensed Consolidated Statements of Cash Flows 5
for the six months ended April 30, 2000 and May 2, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
PART II - OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
April 30, May 2, April 30, May 2,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $45,238,000 $ 45,742,000 $ 83,117,000 $ 84,577,000
Cost of products sold 37,601,000 36,446,000 68,882,000 68,053,000
----------- ------------ ------------ ------------
Gross profit 7,637,000 9,296,000 14,235,000 16,524,000
Selling, general and administrative expenses 5,388,000 6,550,000 11,209,000 12,798,000
----------- ------------ ------------ ------------
Income from operations 2,249,000 2,746,000 3,026,000 3,726,000
Interest expense 1,236,000 1,219,000 2,568,000 2,515,000
Other income 40,000 60,000 87,000 133,000
----------- ------------ ------------ ------------
Income before income taxes 1,053,000 1,587,000 545,000 1,344,000
Income tax expense 490,000 288,000 254,000 177,000
----------- ------------ ------------ ------------
Net income 563,000 1,299,000 291,000 1,167,000
Dividends and accretion on preferred stock (279,000) (273,000) (557,000) (544,000)
----------- ------------ ------------ ------------
Net income (loss) available
for common stockholders $ 284,000 $ 1,026,000 $ (266,000) $ 623,000
=========== ============ ============ ============
Earnings (loss) per common share:
Basic $ 0.05 $ 0.18 $ (0.05) $ 0.11
=========== ============ ============ ============
Diluted $ 0.05 $ 0.18 $ (0.05) $ 0.11
=========== ============ ============ ============
Weighted average number of
common shares outstanding
Basic 5,846,000 5,826,000 5,838,000 5,821,000
=========== ============ ============ ============
Diluted 5,855,000 5,841,000 5,838,000 5,845,000
=========== ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
ASSETS (Unaudited) (See Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 374,000 $ 161,000
Receivables, net 21,591,000 19,999,000
Inventories, net 19,726,000 20,173,000
Prepaid expenses and other 1,677,000 1,101,000
Deferred taxes 1,220,000 1,220,000
------------ ------------
Total current assets 44,588,000 42,654,000
PROPERTY, PLANT AND EQUIPMENT, NET 35,036,000 35,900,000
GOODWILL, NET 26,747,000 27,057,000
OTHER INTANGIBLE ASSETS, NET 7,484,000 7,893,000
OTHER ASSETS 2,373,000 3,186,000
------------ ------------
TOTAL ASSETS $116,228,000 $116,690,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 13,163,000 $ 13,169,000
Accrued expenses 9,124,000 8,695,000
Current portion of related party debt 1,815,000 1,815,000
Current portion of long-term debt 1,872,000 2,064,000
------------ ------------
Total current liabilities 25,974,000 25,743,000
LONG-TERM DEBT, LESS CURRENT PORTION 51,533,000 51,601,000
POSTRETIREMENT BENEFITS AND OTHER LIABILITIES 2,993,000 2,923,000
DEFERRED TAXES 2,521,000 2,439,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 33,207,000 33,984,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $116,228,000 $116,690,000
============ ============
</TABLE>
Note: the balance sheet at October 31, 1999 has been condensed from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
4
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
April 30, May 2,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 291,000 $ 1,167,000
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation 2,710,000 2,671,000
Amortization 1,150,000 1,137,000
Other -- 1,000
Changes in operating assets and liabilities (1,171,000) (947,000)
----------- -----------
Net cash provided by operating activities 2,980,000 4,029,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business -- 4,442,000
Purchases of property, plant and equipment (1,982,000) (3,347,000)
Contingent consideration on acquisition (431,000) (426,000)
Other 973,000 1,581,000
----------- -----------
Net cash provided by (used in) investing activities (1,440,000) 2,250,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit agreement 600,000 (3,550,000)
Payments on long-term debt (859,000) (860,000)
Payments on related party debt -- (1,028,000)
Dividends paid (1,075,000) (711,000)
Other 7,000 --
----------- -----------
Net cash used in financing activities (1,327,000) (6,149,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 213,000 130,000
CASH AND CASH EQUIVALENTS, BEGINNING 161,000 191,000
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 374,000 $ 321,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,271,000 $ 2,722,000
=========== ===========
Taxes paid $ 231,000 $ 346,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Dividends payable $ 493,000 $ 712,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - The condensed consolidated financial statements represent
the consolidated financial position, results of operations and cash
flows of Owosso Corporation and its subsidiaries (the "Company"). The
Company currently operates in four business segments: Motors, Coils,
Trailers and Agricultural Equipment, and Other.
The Motors segment, which includes Stature Electric, Inc. ("Stature"),
Motor Products - Owosso Corporation ("Motor Products"), and Motor
Products Ohio Corporation ("MP-Ohio"), manufactures fractional and
integral horsepower motors. Significant markets for the Company's
motors include commercial products and equipment, healthcare and
recreation. The Company sells its motors primarily throughout North
America and also in Europe.
The Coils segment manufactures heat exchange coils primarily for
non-automotive transportation, refrigeration and commercial and
residential HVAC markets. The businesses included in this segment
include Astro Air Coils, Inc. ("Astro Air"), Snowmax, Inc. ("Snowmax"),
and Astro Air UK Ltd. ("Astro UK"), which began operations in March
1999. The Company sells its coils primarily throughout North America
and also in Europe.
The Trailers and Agricultural Equipment segment includes Sooner Trailer
Manufacturing Co. ("Sooner Trailer"), which manufactures all-aluminum
trailers, primarily horse and livestock trailers. Sooner Trailer sells
its trailers through a dealer network located throughout the United
States and Canada. Also included in this segment through March 1999,
the date of its sale, is Parker Industries ("Parker").
The Company's Other segment includes Dura-Bond Bearing Company
("Dura-Bond"), and M.H. Rhodes, Inc. ("Rhodes"). Dura-Bond manufactures
replacement camshaft bearings, valve seats and shims for the automotive
after-market. Rhodes manufactures timers and subfractional horsepower
motors for use in commercial applications.
Financial Statements - The condensed consolidated balance sheet as of
April 30, 2000 and the condensed consolidated statements of operations
and cash flows for the three- and six-month periods ended April 30,
2000 and May 2, 1999 have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) considered necessary to present fairly
the financial position, results of operations and cash flows as of
April 30, 2000 and for all periods presented have been made. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's October 31, 1999
Annual Report on Form 10-K.
Fiscal Year - The Company's fiscal year includes 52 or 53 weeks ending
on the last Sunday in October. Fiscal year 1999 consisted of 53 weeks.
The first six months of 2000 included 26 weeks, whereas the first six
months of 1999 included 27 weeks. Both the second quarter of 2000 and
1999 included 13 weeks.
6
<PAGE>
Earnings per share - Basic earnings per common share is computed by
dividing net earnings (the numerator) by the weighted average number of
common shares outstanding during each period (the denominator). The
computation of diluted earnings per common share is similar to that of
basic earnings per common share, except that the denominator is
increased by the dilutive effect of stock options outstanding, computed
using the treasury stock method.
Comprehensive income - The Company presents comprehensive income (loss)
as a component of stockholders' equity. For the first six months of
2000, total comprehensive loss was $320,000 and consisted of a net loss
available for common stockholders of $266,000 and a loss on foreign
currency translation adjustment of $54,000. For the second quarter of
2000, total comprehensive income was $228,000 and consisted of net
income available for common stockholders of $284,000, offset by a loss
on foreign currency translation adjustment of $56,000. The Company's
comprehensive income for the six months of 1999 consisted solely of net
loss.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
This statement, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company is in the process of
analyzing the impact that SFAS No. 133 will have on its consolidated
financial position and results of operations when such statement is
adopted.
2. INVENTORIES
April 30, October 31,
2000 1999
Raw materials and purchased parts $ 8,245,000 $ 9,619,000
Work in process 4,959,000 4,076,000
Finished goods 6,522,000 6,478,000
------------ ------------
Total $ 19,726,000 $ 20,173,000
============ ============
3. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental
regulations with respect to its operations. The Company believes that
it is operating in substantial compliance with applicable environmental
regulations. Manufacturing and other operations at the Company's
various facilities may result, and may have resulted, in the discharge
and release of hazardous substances and waste from time to time. The
Company routinely responds to such incidents as deemed appropriate
pursuant to applicable federal, state and local environmental
regulations.
The Company is a party to a consent decree with the State of
Connecticut pursuant to which it has agreed to complete its
environmental investigation of the site on which its Cramer facility
was previously located and conduct any remedial measures which may be
required. In the second quarter of 2000, the Company revised its
estimate of the cost to complete the remedial measures required at the
site. The revision to the estimate resulted in a reduction in the
liability of $260,000. Based upon the amounts recorded as liabilities,
the Company does not believe that the ultimate resolution of this
matter will have a material adverse effect on the consolidated
financial results of the Company.
7
<PAGE>
The Company has been named as a potentially responsible party with
respect to three hazardous substance disposal sites currently under
remediation by the U.S. Environmental Protection Agency (the "EPA")
under its "Superfund" program. With respect to all three sites, based
on the minimal amount of waste alleged to have been contributed to the
sites by the Company, the Company expects to resolve the matters
through the payment of de minimis amounts.
Sooner has arrangements with a number of financial institutions to
provide floor plan financing for its dealers, which requires it to
repurchase repossessed products from the financial institutions in the
event of a default by the financed dealer. Its obligation is typically
to repurchase the equipment at 90% of the purchase price for the first
180 days, 80% for the next 90 days and 70% for the next 90 days, after
which the obligation expires. In the event of a default by all of the
financed dealers, the Company would be required to repurchase
approximately $11,300,000 of product as of April 30, 2000. The Company
does not believe that its obligation under these repurchase agreements
will have a material adverse effect on the financial results of the
Company. Sooner has not taken possession of any significant amount of
equipment pursuant to the repurchase obligations in these contracts.
In addition to the matters reported herein, the Company is involved in
litigation dealing with numerous aspects of its business operations.
The Company believes that settlement of such litigation will not have a
material adverse effect on its consolidated financial position or
results of operations.
8
<PAGE>
4. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, May 2, April 30, May 2,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales:
Motors $ 14,704,000 $16,342,000 $ 28,702,000 $ 31,622,000
Coils 12,733,000 12,767,000 23,212,000 23,793,000
Trailers and Agricultural Equipment 12,763,000 11,450,000 21,932,000 19,428,000
Other 5,038,000 5,183,000 9,271,000 9,734,000
------------ ----------- ------------ ------------
Total net sales $ 45,238,000 $45,742,000 $ 83,117,000 $ 84,577,000
============ =========== ============ ============
Income (loss) from operations:
Motors $ 1,200,000 $ 2,424,000 $ 2,466,000 $ 4,174,000
Coils 589,000 1,426,000 906,000 2,368,000
Trailers and Agricultural Equipment 663,000 371,000 1,032,000 244,000
Other 759,000 345,000 1,153,000 322,000
Corporate (1) (962,000) (1,820,000) (2,531,000) (3,382,000)
------------ ----------- ------------ ------------
Total income from operations $ 2,249,000 $ 2,746,000 $ 3,026,000 $ 3,726,000
============ =========== ============ ============
</TABLE>
(1) Includes unallocated corporate expenses, primarily executive
compensation, information technology, and other administrative
expenses.
The Company derives substantially all of its revenues from within the
United States. Identifiable assets of the segments are not materially
different from amounts disclosed in the Company's 1999 Annual Report on
Form 10-K. Information about interest expense, other income and income
taxes is not provided on a segment level. The accounting policies of
the segments are the same as those described in the summary of
significant accounting policies and in the Company's 1999 Annual Report
on Form 10-K.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
April 30, 2000 and the results of operations for the three and six months ended
April 30, 2000 and May 2, 1999. The first six months of the 2000 period included
26 weeks, whereas the first six months of the 1999 period included 27 weeks.
Both of the three-month periods included 13 weeks. This discussion should be
read in conjunction with the financial statements included elsewhere herein and
the Management's Discussion and Analysis and Financial Statement sections of the
Company's Annual Report on Form 10-K to which the reader is directed for
additional information.
Results of Operations
The following table sets forth for the periods indicated the percentage
relationship that certain items in the Company's Condensed Consolidated
Statements of Operations bear to net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
April 30, May 2, April 30, May 2,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 83.1% 79.7% 82.9% 80.5%
------ ------ ------ ------
Gross profit 16.9% 20.3% 17.1% 19.5%
Selling, general and administrative expenses 11.9% 14.3% 13.4% 15.1%
------ ------ ------ ------
Income from operations 5.0% 6.0% 3.7% 4.4%
Interest expense 2.7% 2.7% 3.1% 3.0%
Other income 0.0% 0.2% 0.1% 0.2%
------ ------ ------ ------
Income before income taxes 2.3% 3.5% 0.7% 1.6%
Income tax expense 1.1% 0.7% 0.3% 0.2%
------ ------ ------ ------
Net income 1.2% 2.8% 0.4% 1.4%
Dividends and accretion on preferred stock 0.6% 0.6% 0.7% 0.6%
------ ------ ------ ------
Net income (loss) available for common stockholders 0.6% 2.2% -0.3% 0.8%
====== ====== ====== ======
</TABLE>
Three months ended April 30, 2000 compared to three months ended May 2, 1999
Net sales. Net sales for the second quarter of 2000 decreased 1.1%, or $504,000,
to $45.2 million, as compared to net sales of $45.7 million in the prior year
quarter. These results include the effect of disposing of Parker in March 1999.
Sales attributable to Parker were $402,000 in 1999.
Net sales from Motors decreased 10.0% to $14.7 million in 2000, from $16.3
million in 1999, primarily as a result of decreased sales to the recreational
vehicle market and a softening of the healthcare market. Sales to the
recreational vehicle market were adversely affected by design issues associated
with a new motor developed for this market.
Net sales from Coils were essentially flat at $12.7 million, compared to the
prior year quarter.
Net sales from the Trailers and Agricultural Equipment segment were $12.8
million in 2000, as compared to $11.4 million in 1999. Sales attributable to
Parker were $402,000 in 1999. Increased sales at Sooner Trailer, the only
remaining business in this segment, were a result of higher unit volume,
primarily from the newly introduced Revolution product line.
10
<PAGE>
Net sales from the Company's Other segment were $5.0 million in 2000, as
compared to $5.2 million in 1999. This decrease was primarily a result of
softness in the automotive after-market.
Income from operations. For the second quarter of 2000, income from operations
was $2.2 million, or 5.0% of net sales, as compared to $2.7 million, or 6.0% of
net sales, in 1999.
Income from operations for the Motors segment was $1.2 million, or 8.2% of net
sales, in the second quarter of 2000, as compared to $2.4 million, or 14.8% of
net sales, in the prior year quarter. These results reflect decreased sales
volume to the recreational vehicle market and a softening of the healthcare
market. As noted above, sales to the recreational vehicle market were adversely
affected by design issues associated with a new motor developed for this market.
The design issues have been resolved and the Company recorded a charge of
$275,000 for the replacement of such motors. Income from operations for the
Motors segment was also unfavorably impacted by temporary production
inefficiencies resulting from a complete overhaul of the Motor Products -
Michigan facility from batch processing to demand flow technology. Over the
remainder of the year, the Company expects productivity levels at Motor Products
to improve over historical levels.
Income from operations for the Coils segment was $589,000, or 4.6% of net sales,
as compared to $1.4 million, or 11.2% of net sales, in the prior year quarter.
These results reflect a decrease in gross profit of $741,000 primarily from
manufacturing inefficiencies related in part to the transition to a new
manufacturing system, as well as a $96,000, or 15.5% increase in selling,
general and administrative expenses resulting from increased personnel costs.
The Trailers and Agricultural Equipment segment had income from operations of
$663,000 in 2000, as compared to $371,000 in the prior year quarter. This
increase reflects the disposition of Parker which reported a net loss from
operations in the prior year quarter of $339,000. Income from operations from
Sooner Trailer was essentially flat, despite a 15.5% increase in net sales.
Sooner is redefining its manufacturing process to adopt more modern and
efficient manufacturing technologies. The temporary disruption this has caused
to the business unfavorably affected its profitability during the second quarter
of 2000.
Income from operations for the Company's Other segment was $759,000 in 2000, as
compared to $345,000 in the prior year quarter, reflecting improved
profitability at Rhodes.
Unallocated corporate expenses included in income from operations were $962,000
or 2.1% of net sales, as compared to $1.8 million, or 4.0% of net sales in 1999.
This decrease includes a $260,000 reduction in the Company's estimated liability
for environmental costs related to remedial measures required at the site on
which its Cramer facility was previously located. The decrease in corporate
expenses also reflects reduced levels of personnel as compared to the prior year
and reduced incentive compensation.
Interest expense. Interest expense was $1.2 million for the second quarters of
both 2000 and 1999.
Income tax expense (benefit). The Company's effective income tax rate was 46.5%
for 2000, as compared to 18.1% in the prior year quarter. The effective tax rate
for the prior year was favorably impacted by a deferred tax benefit realized
upon the sale of Parker in March 1999.
Net income available for common stockholders. Net income available for common
stockholders was $284,000, or $.05 per share, in the second quarter of 2000, as
compared to $1.0 million, or $.18 per share, in the prior year quarter. Income
available for common stockholders is calculated by subtracting dividends on
preferred stock of $187,000 for both 2000 and 1999 and by deducting the non-cash
accretion in book value of preferred stock of $92,000 and $86,000 for 2000 and
1999, respectively.
11
<PAGE>
Six months ended April 30, 2000 compared to six months ended May 2, 1999
Net sales. Net sales for the first six months of 2000 decreased 1.7%, or $1.5
million, to $83.1 million, as compared to net sales of $84.6 million in the
prior year quarter. These results include the effect of disposing of Parker in
March 1999. Sales attributable to Parker were $1.0 million in 1999.
Net sales from Motors decreased 9.2% to $28.7 million in 2000, from $31.6
million in 1999, primarily as a result of decreased sales to the recreational
vehicle market due to design issues associated with a new motor developed for
this market and a softening of the healthcare market.
Net sales from Coils decreased 2.4% to $23.2 million in 2000 from $23.8 million
in 1999. This decrease is a result of a weakness in demand experienced in the
beverage refrigeration and heavy truck markets.
Net sales from the Trailers and Agricultural Equipment segment were $21.9
million in 2000, as compared to $19.4 million in 1999. Sales attributable to
Parker were $1.0 million in 1999. Sales at Sooner Trailer, the only remaining
business in this segment, increased 19.0%, or $3.5 million as a result of higher
unit volume, particularly from the newly-introduced Revolution product line.
Net sales from the Company's Other segment were $9.3 million in 2000, as
compared to $9.7 million in 1999. This decrease was primarily a result of
softness in the automotive after-market.
Income from operations. For the first six months of 2000, income from operations
was $3.0 million, or 3.6% of net sales, as compared to $3.7 million, or 4.4% of
net sales, in 1999.
Income from operations for the Motors segment was $2.5 million, or 8.6% of net
sales, in the first six months of 2000, as compared to $4.2 million, or 13.2% of
net sales, in the prior year period. These results reflect decreased sales
volume to the recreational vehicle market and a softening of the healthcare
market. As mentioned above, sales to the recreational vehicle market were
adversely affected in the second quarter of 2000 by design issues associated
with a new motor developed for this market. The design issues have been resolved
and the Company recorded a charge of $275,000 for the replacement of such
motors. Income from operations for Motors was also impacted by production
inefficiencies related to the adoption of demand flow technology at Motor
Products at the beginning of the second quarter of 2000.
Income from operations for the Coils segment was $906,000, or 3.9% of net sales,
as compared to $2.4 million, or 10.0% of net sales, in the prior year period.
These results reflect decreased sales volume primarily to the beverage
refrigeration market and lower margins caused primarily by manufacturing
inefficiencies related in part to the transition to a new manufacturing system.
The Trailers and Agricultural Equipment segment had income from operations of
$1.0 million in 2000, as compared to $244,000 in the prior year period. This
increase reflects the disposition of Parker which reported a net loss from
operations in the prior year. Exclusive of the effects of Parker, income from
operations for this segment increased to 4.7% of net sales in 2000, as compared
to 4.6% in the prior year period.
Income from operations for the Company's Other segment was $1.2 million in 2000,
as compared to $322,000 in the prior year period, reflecting improved
profitability at Rhodes.
Unallocated corporate expenses included in income from operations were $2.5
million, or 3.0% of net sales, as compared to $3.4 million, or 4.0% of net
sales, in 1999. This decrease primarily reflects reduced environmental costs, as
well as reduced personnel costs.
12
<PAGE>
Interest expense. Interest expense increased to $2.6 million for the first six
months of 2000 as compared to $2.5 million in the prior year period, primarily
as a result of increased rates.
Income tax expense (benefit). The Company's effective income tax rate was 46.6%
for 2000, as compared to 13.2% in the prior year period. The effective tax rate
for 1999 was favorably impacted by a deferred tax benefit realized upon the sale
of Parker.
Net income (loss) available for common stockholders. Net loss available for
common stockholders was $266,000, or $.05 per share, in 2000, as compared to net
income available for common stockholders of $623,000, or $.11 per share, in the
prior year period. Income (loss) available for common stockholders is calculated
by subtracting dividends on preferred stock of $375,000 for both 2000 and 1999
and by deducting the non-cash accretion in book value of preferred stock of
$182,000 and $169,000 for 2000 and 1999, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $374,000 at April 30, 2000. Working capital
increased to $18.6 million at April 30, 2000 from $16.9 million at October 31,
1999. Net cash provided by operating activities was $3.0 million, as compared to
$4.0 million in the prior year period. The decrease in cash from operations was
principally the result of decreased operating income.
Net cash used in investing activities included $2.0 million for capital
expenditures for equipment, invested primarily in Motors, Coils and Trailers,
and $431,000 of contingent consideration paid to the former owner of Astro Air
and recorded as goodwill. The Company currently plans to invest approximately
$2.0 million during the remainder of fiscal 2000, primarily for added capacity
and production efficiencies. Management anticipates funding capital expenditures
with cash from operations and proceeds from the Company's revolving credit
facility. Cash flows from investing activities also included approximately
$830,000 received on notes obtained in connection with the sale of subsidiaries.
Net cash used in financing activities included net borrowings of $600,000 under
the Company's revolving credit agreement, debt repayments of $859,000, and the
payment of dividends of $1.1 million.
Effective for the second quarter of 2000, the Company modified certain covenants
included in its revolving credit facility. In connection with such
modifications, the Company is restricted from making common stock dividend
payments subsequent to August 28, 2000. The Company is in compliance with such
modified covenants and expects to continue to be in compliance for the
foreseeable future.
The Company has interest rate swap agreements with its two banks with notional
amounts totaling $20.4 million. The Company entered into these agreements to
change the fixed/variable interest rate mix of its debt portfolio, in order to
reduce the Company's aggregate risk from movements in interest rates.
The Company believes anticipated funds to be generated from future operations
and available credit facilities will be sufficient to meet anticipated operating
and capital needs.
"Year 2000" Costs
The Company did not experience any business interruptions or any other
significant issues related to the "Year 2000". The costs associated with
bringing the Company's centralized manufacturing and accounting information
system and other date-sensitive equipment into "Year 2000" compliance was not
material. In addition, the Company is not aware of any "Year 2000" disruptions
at any of its significant suppliers or large customers.
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Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The following information is provided pursuant to the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Certain statements in
Management's Discussion and Analysis of this Form 10-Q, including those which
express "belief", "anticipation" or "expectation" as well as other statements
which are not historical fact, are "forward-looking statements" made pursuant to
these provisions. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Company cautions readers that the following important factors, among others,
have in the past affected and could in the future affect the Company's actual
results of operations and cause the Company's actual results to differ
materially from the results expressed in any forward-looking statements made by
or on behalf of the Company:
o The Company's results have been and can be expected to continue to be
affected by the general economic conditions in the United States and
specific economic factors influencing the manufacturing sector of the
economy. Lower demand for the Company's products can lower revenues as
well as cause underutilization of the Company's plants, leading to
reduced gross margins.
o Metal prices, particularly aluminum, copper and steel, can affect the
Company's costs as well as demand for the Company's products and the
value of inventory held at the end of a reporting period. Lack of
availability of certain commodities could also disrupt the Company's
production.
o Changes in demand that change product mix may reduce operating margins by
shifting demand toward less profitable products.
o Loss of a substantial customer or customers may affect results of
operations.
o The Company's results can be affected by engineering difficulties in
designing new products or applications for existing products to meet the
requirements of its customers.
o Obsolescence or quality problems leading to returned goods in need of
repair can affect the value of the Company's inventories and its
profitability.
o The Company has a substantial amount of floating rate debt. Increases in
short-term interest rates could be expected to increase the Company's
interest expense.
o The Company's facility in the United Kingdom subjects the Company to
various risks, which may include currency risk, risk associated with
compliance with foreign regulations, and political and economic risks.
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o Acquisitions are an important part of the Company's growth strategy.
Acquisitions may have a dilutive effect on the Company's earnings and
could effect the Company's available credit and interest costs.
Conversely, the Company may from time to time divest of product lines or
business units. Any such divestiture may involve costs of disposition or
loss on the disposition that could reduce the Company's results.
o Although the Company is not aware of any "Year 2000" disruptions at any
significant supplier or customer, there can be no assurance that if a
disruption did occur, it would not have a material adverse effect on the
Company's operating results or financial condition.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company uses a revolving credit facility, industrial revenue bonds and term
loans to finance a significant portion of its operations. These on-balance sheet
financial instruments, to the extent they provide for variable rates of
interest, expose the Company to interest rate risk resulting from changes in
London Interbank Offered Rate or the prime rate. The Company uses off-balance
sheet interest rate swap agreements to partially hedge interest rate exposure
associated with on-balance sheet financial instruments. All of the Company's
derivative financial instrument transactions are entered into for non-trading
purposes.
The quantitative and qualitative disclosures about market risk as of April 30,
2000 did not differ materially from the information disclosed in the Company's
Form 10-K for the fiscal year ended October 31, 1999. The information set forth
in the Form 10-K under Part I, Item 7A - Quantitative and Qualitative
Disclosures About Market Risk is incorporated herein by reference in response to
this Item 3.
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Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Effective for the second quarter of 2000, the Company's revolving credit
facility was amended. In accordance with such amendment, the Company is
restricted from making common stock dividend payments subsequent to August 28,
2000.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on March 22, 2000, the
shareholders elected six directors, the holders of the Class A Convertible
Preferred Stock elected one director and the shareholders ratified the
appointment of independent auditors for the year ending October 30, 2000. In the
election of directors, 6,272,900 shares were voted in favor of the election of
George B. Lemmon, Jr., and 12,160 were withheld, 6,272,650 shares were voted in
favor of the election of John R. Reese and 12,410 were withheld, 6,272,650
shares were voted in favor of the election of Eugene P. Lynch and 12,410 were
withheld, 6,272,650 shares were voted in favor of the election of Ellen D.
Harvey and 12,410 were withheld, 6,272,900 shares were voted in favor of the
election of Harry E. Hill and 12,160 were withheld, 6,272,900 shares were voted
in favor of the election of James A. Ounsworth and 12,160 were withheld. There
were 1,071,428 shares of the Class A Convertible Preferred Stock voted in favor
of Lowell P. Huntsinger. In the vote for ratification of the appointment of
Deloitte & Touche LLP as independent auditors for the year ending October 30,
2000, 6,277,560 shares were voted in favor, 7,300 shares were voted against, and
200 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
11 Computation of Per Share Earnings
27 Financial Data Schedule
*99.1 Part I, Item 7A - Quantitative and Qualitative Disclosures
About Market Risk of the Company's Annual Report on Form
10-K for the year ended October 31, 1999.
(b) Form 8-K
No reports on Form 8-K were filed during the quarter ended
April 30, 2000.
----------------------------
* Incorporated by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OWOSSO CORPORATION
Date: June 12, 2000 By: /s/ George B. Lemmon, Jr.
-------------------------
George B. Lemmon, Jr.
President, Chief Executive
Officer, and Director
By: /s/ John M. Morrash
-------------------------
John M. Morrash
Executive Vice President - Finance,
Chief Financial Officer, and
Treasurer and Secretary
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